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on Corporate Finance |
| By: | Benjamin Collier; Sabrina T. Howell; Lea Rendell |
| Abstract: | Does emergency credit prevent long-term financial distress? We study the causal effects of government-provided recovery loans to small businesses following natural disasters. The rapid financial injection might enable viable firms to survive and grow or might hobble precarious firms with more risk and interest obligations. We show that the loans reduce exit and bankruptcy, increase employment and revenue, unlock private credit, and reduce delinquency. These effects, especially the crowding-in of private credit, appear to reflect resolving uncertainty about repair. We do not find capital reallocation away from neighboring firms and see some evidence of positive spillovers on local entry. |
| Keywords: | Financing frictions, natural disasters, climate change adaptation, entrepreneurship, government credit |
| JEL: | G21 G32 H81 Q54 R33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:24-20&r=cfn |
| By: | Benjamin L. Collier; Sabrina T. Howell; Lea Rendell |
| Abstract: | Does emergency credit prevent long-term financial distress? We study the causal effects of government-provided recovery loans to small businesses following natural disasters. The rapid financial injection might enable viable firms to survive and grow or might hobble precarious firms with more risk and interest obligations. We show that the loans reduce exit and bankruptcy, increase employment and revenue, unlock private credit, and reduce delinquency. These effects, especially the crowding-in of private credit, appear to reflect resolving uncertainty about repair. We do not find capital reallocation away from neighboring firms and see some evidence of positive spillovers on local entry. |
| JEL: | G21 G32 H81 Q54 R33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32326&r=cfn |
| By: | Iván Alfaro; Nicholas Bloom; Xiaoji Lin |
| Abstract: | We show how real and financial frictions amplify, prolong and propagate the negative impact of uncertainty shocks. We first use a novel instrumentation strategy to address endogeneity in estimating the impact of uncertainty by exploiting differential firm exposure to exchange rate, policy, and energy price volatility in a panel of US firms. Using common proxies for financial constraints we show that ex-ante financially constrained firms cut their investment even more than unconstrained firms following an uncertainty shock. We then build a general equilibrium heterogeneous firms model with real and financial frictions, finding financial frictions: i) amplify uncertainty shocks by doubling their impact on output; ii) increase persistence by extending the duration of the drop by 50%; and iii) propagate uncertainty shocks by spreading their impact onto financial variables. These results highlight why in periods of greater financial frictions uncertainty can be particularly damaging |
| Keywords: | Uncertainty, Financial frictions, Investment, Employment, Cash Holding, Equity payouts |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bbq:wpaper:0001&r=cfn |
| By: | Efraim Benmelech |
| Abstract: | Secured debt—a debt contract that offers security to creditors in the form of collateralized assets—has been a cornerstone of credit markets in most societies since antiquity. The ability to seize and sell collateral reduces the creditor’s expected losses when the debtor defaults on a promised payment. Moreover, when a firm borrows from multiple creditors with different seniorities, debt secured by assets has higher priority relative to other creditors and is first in line for payment if the firm is bankrupt. While the benefits of secured debt have been shown in both the theoretical and empirical literature, less is known about the costs associated with secured borrowing. This paper surveys the burgeoning empirical literature on secured debt and provides an assessment of the costs and benefits of secured debt. |
| JEL: | G12 G32 G33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32353&r=cfn |
| By: | Kaufmann, Mattheo |
| Abstract: | Mergers and acquisitions (M&As) are one of the major ways through which corporate assets change owners. This reallocation mechanism represents an important instrument to ensure the efficient use of assets and the associated post-merger integration process often implies drastic changes not only for employees, customers and suppliers, but also for competitors and the overall industry structure. The potential gains or losses can be material in size for the involved parties, and as such considerable research has been devoted to advance our understanding of transactions. Nevertheless, research gaps remain, for example with respect to the impact of major corporate events such as initial public offerings (IPOs) or security class action lawsuits (SCAs) on M&A transactions as well as regarding the implications of acquisitions for the competitive dynamics within a given industry. This dissertation consists of three distinct studies aiming to contribute to existing research gaps in the field of M&As. The first study examines the role of financial sponsors—i.e., private equity (PE) and venture capital (VC) investors—in the context of the acquisition activity of their portfolio firms once these firms went public. In particular, it focuses on the question whether financial sponsors promote or moderate the acquisition activity of their portfolio company after going public, a research question previously unaddressed. My findings suggest that PE-backed newly public firms engage in almost three times as many acquisitions as VC-backed newly public firms and that they achieve superior long-run post-IPO stock returns when doing so. The second study investigates the impact of corporate innovation on M&As. Specifically, the study seeks to understand the competitive dynamics that are at play when large technology conglomerates acquire innovative assets and the ramifications these acquisitions have for rival firms within the same industry. It shows that innovative acquirers are able to outbid non-innovative acquirers for innovative target firms and that innovative acquirer rivals react to these transactions by increasing both their R&D spending and their likelihood to acquire a technology target firm in the years after the competitor's M&A announcement. The third study explores M&A transactions in the context of security class action lawsuits (SCAs). Particularly, it analyzes to what extent bidders are able to capitalize on acquiring target firms that are subject to ongoing litigation. The study provides evidence that SCAs significantly reduce takeover premiums, but acquirers who purchase SCA-affected targets nevertheless experience significantly more negative announcement returns than acquirers of non-SCA affected ones. In the long-run, however, acquirers of SCA-affected targets are able to recoup some of their losses, particularly if the SCA is later dismissed. |
| Date: | 2024–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:144589&r=cfn |
| By: | WANG Liya; KAWATA Yuji; TAKAHASHI Kohei |
| Abstract: | In recent years, as workers' career aspirations have become increasingly diverse, it is essential to encourage them to invest autonomously in their human capital. Coworkers (peers) play important roles in affecting attitudes in a real workplace with social interactions. This study examines the influence of coworkers' human capital accumulation on employees' willingness to invest (as a peer effect). We focus on overseas assignment, which is one aspect of job assignments, as an indicator of autonomous human capital investment decision-making. Specifically, utilizing unique personnel data from a large trading firm, we investigate the effect of peers’ overseas experiences on focal workers’ willingness to work overseas and whether the effect differs by gender. A peer group is defined as the cohort of workers who enter the firm in the same year and which feel a strong sense of membership and a have competitive relationship with other members. In order to mitigate potential endogeneity problems, we employ a model in which the overseas work experience of bosses of peers at different workplaces from focal workers is an instrument variable . Our results show that overseas experience of male peers has significantly positive effects on human capital investment decisions of male employees: the more male peers experienced working overseas, the more willing male workers became to undertake similar assignments. On the other hand, we do not detect the peer effects on female workers. This implies that the underlying mechanism of peer effects may be competitive rivalry. The findings of this study have managerial implications for designing competition in firms. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24055&r=cfn |
| By: | Cecilia Dassatti (Banco Central del Uruguay) |
| Abstract: | The global business shutdown derived from the COVID shock posed the challenge for policymakers of designing a quick an effective response to cushion the negative impact of the pandemic on the activity of small firms. Using granular data on loans and guarantees, I study the impact of a Public Credit Guarantee Scheme implemented in Uruguay. The results of the estimations suggest that the policy effectively reached the targeted industries, offering evidence in favor of the private financial sector operating as a conduit of government-backed liquidity for microsmall- and medium-sized firms. I also find empirical evidence suggesting a mild opportunistic behavior through substitution of illiquid guarantees and about the role of state-owned banks in credit provision during the pandemic. |
| Keywords: | COVID-19, public credit guarantee, state-owned banks |
| JEL: | G21 G28 E65 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bku:doctra:2023005&r=cfn |